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Our dialogue with the Ministry of Finance

08.06.2016

On April 7th we wrote an email to all independent TDs asking them to support our call for an FTT. Following this, one independent TD, Finian McGrath, now Minister of State, addressed a Parlamentarian Question to the Minister of Finance and forwarded us the answer on May 4th. The Robin Hood Tax campaign then responded to this answer on June 8th.

An encouraging dialogue and we will keep at it!

Have a look at the whole dialogue here:

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April 7th 2016, RHT Campaign to Finian McGrath:

Dear Finian,

Warm congratulations on your recent election to Dáil Éireann.

As a public representative we would like you to consider the case for a Financial Transaction Tax (FTT) in Ireland. An FTT could raise €1.8bn over the 5 year lifespan of the next Government or €360m per year.

As the new Government is being negotiated it is clear that there will continue to be difficult decisions to make in relation to how budgets are allocated. As you know Michael Noonan is already warning of the dangers of health service overspends (Irish Times: http://bit.ly/1MaNBon).

Given these realities, we cannot understand why the main political parties continue to ignore the potential of an FTT, especially given the progress our European partners. Currently 10 EU member states are introducing an FTT in an enhanced cooperation procedure. The EU is proposing a tax of 0.1% on trading in bonds and shares, and 0.01 % on trading in derivatives.

According to a recent NERI research paper the European FTT would raise between €320-€360M in Ireland every year. The NERI report is attached.

Not only would the FTT raise much needed revenue for public services, climate change and overseas development, it also has the potential to reduce harmful economic activity by short term speculators and high frequency financial traders (HFT).

There are no significant economic or employment dangers associated with introducing the FTT here. According to the attached NERI report "it is difficult to argue that there would be a considerable relocation of activities from Dublin to elsewhere given the small size of the tax and the limited evidence for relocation associated with the current, far bigger, difference in equity trading costs between Dublin and London”. The report goes on to predict that the small effects on current HFT employment would be countered by positive employment benefits through the investment of the tax revenue.

We invite you to have a look at our campaign website for an Irish Financial Transaction Tax (FTT), which we call the Robin Hood Tax (www.robinhoodtax.ie). This campaign is part of a large and growing international movement for a Robin Hood Tax. With 42 civil society organisations in Ireland and a rapidly growing public supporter base we are calling on the Irish Government to join the 10 EU member states that are introducing an FTT.

As the negotiations for the new government continue to unfold we ask that you raise the potential benefits of an Irish FTT in your talks.

We look forward to hearing from you. Wishing you the very best,

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May 4th, Reply by Ministry of Finance via Finian McGrath

To ask the Minister for Finance his views on correspondence (details supplied) regarding the Financial Transaction Tax including if this tax will raise an extra €360 million per year; and if he will make a statement on the matter.

REPLY.

The document referred to in the correspondence mentioned by the Deputy is a Nevin Economic Research Institute (NERI) working paper which I note is work-in-progress.

Ireland already has a tax on financial transactions, a Stamp Duty on transfers of shares in Irish incorporated companies, which currently stands at 1%. I am informed by the Revenue Commissioners that the yield from this charge in 2015 was €424.13 million which is over €100 million higher than the estimated yield figure used in the NERI working paper referred to by the Deputy.

The Financial Institutions Levy I announced as part of Budget 2014 is a revenue raising measure which provides for a contribution from the banking sector to Ireland's economic recovery. The levy is in place for the years 2014 to 2016 inclusive with an anticipated annual yield of €150 million. As the levy is a percentage of an institution's DIRT liability in 2011, liability to the levy relates to the size of an institution's Irish operation. The entire banking system has been underpinned by the strong Government support provided both here and abroad and I believe it is appropriate therefore that the banking sector should make a contribution to the State's economic recovery. Accordingly, I announced in my Budget 2016 statement that I propose to extend the levy out to 2021, subject to a review taking place of the methodology used to calculate the levy. This will bring in an additional €750 million over the period, which is a very significant additional contribution to the Exchequer.

In relation to discussions at EU level, the Government's position is that a Financial Transactions Tax would be best applied on a wide international basis to include the major financial centres to prevent the danger of activities gravitating to jurisdictions where taxes are not levied on financial transactions. Notwithstanding this, the Government is not prepared to stand in the way of EU Member States that wish to work together to implement a Financial Transactions Tax and in this regard adoption of a decision formally authorising enhanced cooperation took place during the Irish Presidency of the EU in January 2013.

The proposal for a Directive from the European Commission in the area of financial transaction tax was published in February 2013. Ireland had many concerns about the proposal as drafted, not least of which were the potential impacts on, and the trading of, Irish Sovereign debt in the secondary market and in total, the potential negative impact on the liquidity of the financial sector as a whole. Members of the Economic and Financial Sub-Committee on EU Sovereign Debt Markets have stated that the introduction of the FTT would have a significantly negative effect on Sovereign Debt Markets and may impair the good-functioning of secondary markets for sovereign debt resulting in reduced liquidity, reduced investor demand and therefore higher financing costs for States.

Our concerns are widely shared amongst the Member States, including some of the participating countries. These concerns have led to the issuing of a communique by the participating Member States, announcing that they have agreed to implement a financial transaction tax in a progressive manner, with the first step being a charge on shares and some derivatives. More recently on 8th December 2015 the ECOFIN Council discussed the current state of play with regard to the proposal of a number of Member States to introduce a financial transaction tax. In the context of this discussion, ten of the original eleven Member States (Estonia has indicated that it no longer supports the proposal) issued a statement setting out their agreement on some principles and parameters for an FTT, as well as the areas that were still open for discussion. The statement indicates that a decision on the open issues should be made by end of June 2016.

The statement of the ten Member States indicates that further work will take place regarding the applicable tax rates. The ten Members States also agreed on the need to further analyse the impact of the tax on the real economy and pension schemes. They also state that the financial viability of the tax for each country is required i.e., whether or not the costs of implementing the tax are adequately covered by its revenue.

There is still uncertainty therefore as to the form the FTT might take and more detail would be needed on the final shape of the tax before a definitive conclusion could be reached about its impact on Irish taxation revenue.

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June 8th 2016 RHT Campaign reply to the Ministry of Finance:

Dear Minister Noonan,

We would like to thank you for the extensive response you have provided to the PQ of Minister Finian McGrath on Ireland and the EU Enhanced Cooperation Procedure for a Financial Transactions Tax. We are encouraged at the positive tone to the answer and your acknowledgement of the findings of the NERI working paper on the Financial Transactions Tax.

We are pleased to note that your answer suggests that an FTT would provide significant revenue on an annual basis, a minimum of one billion Euro over 4 years. However, your assessment of the stamp duty revenue seems surprisingly high, given past trends, and we would welcome further clarification in this regard.

You suggest that Ireland’s main objection to the tax as proposed by the European Commission is the inclusion of sovereign bonds. However, this is not part of the current compromise being pursued by the Member States cooperating in the Financial Transactions Tax initiative. Thus this would not actually be an obstacle to Irish participation.

It is positive to learn that Ireland has no objection to the other 10 EU Member States introducing a Financial Transactions Tax. We agree with your view that it would be optimal if this tax was applied on an international basis. However, we do not think this is vital for it to be successful for the following reasons:

(1) Very little relocation: As you state Ireland already has a tax on financial transactions. The IMF clearly states that Financial Transactions Taxes do not automatically drive out financial activity to any unacceptable extent. According to the NERI report "it is difficult to argue that there would be a considerable relocation of activities from Dublin to elsewhere given the small size of the tax and the limited evidence for relocation associated with the current, far bigger, difference in equity trading costs between Dublin and London."

(2) Financial Transactions Taxes are hard to avoid: The Financial Transaction Tax is constructed so that it is very hard to avoid. If a financial instrument is traded from a FTT country, in a FTT country or the financial instrument involves a FTT country (e.g. a FTT country share), then the FTT will be applied. Thus, the only way that a financial institution could avoid the FTT would be if it was in a country outside the FTT zone, trading with a country that is not in the FTT zone, with a financial instrument not involved in a FTT country. In other words, a company would have to stop all business and transactions with FTT countries. This would be self-defeating for almost all financial institutions. Were Ireland to adopt the Financial Transactions Tax, there would be no incentive for financial institutions to move to London as long as they were trading financial instruments involving a FTT country or trading into a FTT country.

(3) Small, if any, effects on employment: The NERI report predicts small effects on employment, and any such effects would be mainly on jobs in risky High Frequency Trading. The report states "However, these effects would be countered by positive employment benefits from the use of the revenue (...) and broader welfare gains for society associated with a near elimination of most risky High Frequency Trading."

We wish to re-emphasise the potential in the additional revenue this tax could raise for the exchequer and the further potential of this tax in reducing harmful economic activity by short term speculators and high frequency financial traders. We would propose that the increased revenue could be invested in public services, addressing climate change, reducing poverty, and fulfilling Ireland's overseas aid commitments. In this way the Financial Sector would play a more significant part in repaying its debt to Irish society.

We hope that the June ECOFIN meeting will bring an agreement on the implementation of a Financial Transactions Tax by the ten EU Member States involved in the Enhanced Cooperation Procedure, and thereafter the Irish Government will decide to follow suit with the introduction of an Financial Transactions Tax here.

We look forward to hearing further from you on these issues and to an eventual change of heart in relation to Irish participation in implementing a Financial Transactions Tax.